Glossary

Insurance Terms & Concepts

a - b - c - d - e - f - g - h - i - j - k - l - m - n-  o - p - q  r  s  t  u  v - w - x - y - z 

"A" (or Judgment) Rates - Rates that are based on the judgment of the underwriter on an individual risk basis and not supported by loss experience.

Abandonment - A term that applies to property and signifies both a relinquishing of it and the letting go of all legal rights to it, as well, with the intent to claim a total loss. Abandonment of property to an insurance company is something insureds are expressly prohibited from doing in most property polices.

Abandonment clause - A property policy provision that stipulates that the insurer need not accept any damaged property that the insured chooses to relinquish.

Absolute liability - The performance of an act so dangerous as to be sufficient to trigger liability regardless of the degree of negligence. Triggering explosives is often used as an example. Sending workers aloft for construction or repair at elevated heights is another. ``Strict liability'' is another term that is sometimes used.

Accident - An unforeseen, unintended, and unexpected event, which occurs suddenly and at a definite place. See Occurrence.

Accident frequency - The rate of occurrence of accidents. Along with accident severity, it is taken into account in ratemaking.

Accident severity - The measure of the seriousness of a claim, measured in, for example, dollars. Along with frequency, it is taken into account in ratemaking.

Accident year experience - Measures premiums and losses relating to accidents which occurred during a 12-month period.

Accommodation line - Normally unacceptable risks that are written as an accommodation to an agent or broker who has an overall profitable relationship with the insurer. For example: a personal auto risk with a teenage driver of a sports car might be written if the other lines of insurance which it carries for the customer were profitable; or if the agency has had a good and profitable relationship with the insurer.

Account current - A monthly statement provided by an insurer detailing an agent's premiums, commissions, cancellations, and endorsements.

Account selling - Account selling is trying to handle all of a client's insurance needs, rather than providing for only a portion of those needs.

Accounts receivable insurance - Pays for the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril. Even more important, it covers any payments that cannot be collected because records cannot be reconstructed.

Acquisition cost - The expense undertaken to acquire new business. The concept applies to both agents and companies. The largest portion of an insurer's acquisition cost is agent's or sales representative's commission or bonus.

Act of God - Acts of nature ð the term was once widely used to distinguish between manmade events, i.e., fire, collision, and nature's rampages in wind and flood.

Active malfunction - In products insurance, a defect or malfunction in a product that damages the property of the user.

Actual authority - Authority that an insurer intentionally gives to the agent. See express authority and implied authority.

Actual cash value (ACV) - A method for placing value on property as of the time of its loss or damage. ACV may be determined as replacement cost, new, less depreciation. The market value of an item may be used to help determine actual cash value. Contrast with replacement cost.

Actual cash value appraisal - An appraisal to determine the actual cash value of a building and related personal property.

Actuary - A person highly trained in mathematics and statistics who calculates rates and dividends, and provides other statistical information for an insurance company.

Additional insured - One who qualifies as insured under the terms of a policy even though not named as insured. Officers of a corporation may be included as insureds under the terms of a policy written in the name of the corporation.

Additional living expense insurance - This coverage, found in homeowners forms, provides payment for extra expenses made necessary by the insured's inability to reside in the insured dwelling because of a covered loss ð for example, restaurant meals and hotel bills. The amount payable is the difference between normal household expenses and the increase.

Adequate - a criterion of insurance rate regulation that stipulates that an insurer's premium rates must be adequate to cover the insurer's cost of doing business, claims payments, and a reasonable profit to the insurer.

Adhesion contract - A standardized set of agreements offered by one (usually the stronger) party to another on a ``take it or leave it'' basis. An insurance policy is an example of such a contract. The insurer offers a personal auto policy, for example, that an individual may ``adhere to'' (or not) but in any case the individual may not change any of its terms. Because it has the stronger position, the insurance company has the burden to spell out its terms precisely. Such contracts are interpreted strictly against the author of the contract. Not to be confused with aleatory contract.

Adjuster - A person who may act either on behalf of the insurance company or the insured in the settling a claim. Employee adjusters work for an insurer; independent adjusters represent the insurance company on a fee basis; and public adjusters represent the insured on a fee basis.

Admitted assets - The highly liquid assets of an insurer permitted by the state to be taken into account when reporting financial condition.

Admitted company - An insurance company that is licensed (admitted) to conduct business within a given state.

Admitted market - The range of insurance available through admitted companies.

Advance premium - Also called ``deposit premium,'' an advance premium is a downpayment on what will be the final premium, in policies where the final premium is subject to audit.

Adverse selection - The tendency of poorer than average risks to buy and maintain insurance. Adverse selection occurs when insureds select only those coverages that are most likely to have losses.

Adverse underwriting decision - Any decision made by an underwriter that is not favorable to the insured. Such decisions involve: termination, declination, higher rates, or reduction in coverage. Another example is the placing of a risk in a residual market or with an unauthorized insurer.

Advertising injury - Claim arising out of slander, libel, copyright infringement, or misappropriation of advertising ideas. Coverage is provided as part of coverage B of the commercial general liability policy.

Affinity marketing - Targeting marketing efforts toward one group or category of client. Examples include: grocery stores; all the employees of one company; or employees in one industry. Group business is a type of affinity marketing.

Agency company - An insurance company that produces business through an agency network. See direct writer.

Agency contract - The legal agreement between an insurance agency and the insurer detailing the terms of representation.

Agency plant - The total force of agents representing an insurer.

Agent - One who solicits, negotiates or effects contracts of insurance on behalf of an insurer. His right to exercise various functions, his authority, and his obligations and the obligations of the insurer to the agent are subject to the terms of the agency contract with the insurer, to statutory law, and to common law.

Agent's appointment - The act by an insurer that grants an agent the authority to act as an agent for the insurer. In most states, agents must be licensed and appointed, prior to being allowed to sell insurance.

Agent's authority - The authority of an insurance agent to act on behalf of the insurer he or she represents. There are several types including: express authority (authority to act on specific instructions only); implied authority (actions taken in accordance with prevailing custom); or apparent authority (actions based on appearances created by the agent and acquiesced to by the principal).

Agents errors and omissions insurance - Insurance obtained by the insurance agent to guard against loss caused by an unintentional failure to properly insure (or recommend insurance to) a client.

Agent's license - A certificate of authority from the state that permits the agent to conduct business.

Aggregate deductible - A deductible provision in some property insurance contracts where all covered losses during a year are figured together and an insurer pays only when the aggregate deductible amount is exceeded.

Aggregate excess reinsurance - A type of excess reinsurance treaty that sometimes is called stop loss or excess of loss ratio reinsurance. The retention in this type of agreement is calculated based on all losses over the period of time that is stated in the treaty. The reinsurer is responsible for the amount of losses between the retention and the limit on the treaty.

Aggregate limit - The maximum amount an insurer will pay under a policy in any one policy period.

Agreed amount clause - An agreement between underwriter and insured whereby, in exchange for the purchase of coverage in an amount specified by the underwriter, the insured is protected from a coinsurance penalty.

Agreed value clause - Though rare, some policies cover for a value agreed upon at the time of writing; if the property is lost because of an insured peril, the amount stated in the policy will be paid. Fine arts insured under a personal articles floater or homeowners scheduled personal property endorsement are examples.

Aircraft coverages - Though aircraft have long been an important element in the lives of most Americans, insurance of aircraft exposures has remained outside the mainstream of property and liability insurance markets. Aircraft hull and liability insurance is the counterpart of personal or commercial auto policies coverage. Aircraft products insurance is the counterpart of products liability cover. Air cargo insurance is mirrored in motor truck cargo. Hangarkeepers liability is akin to garagekeepers coverage. As with any specialty line of insurance, the absence of standardized forms limits practice to specialists in the line.

Alcoholic Beverage Control (ABC) laws, see Dram shop laws.

Aleatory contract - A contract in which the number of dollars to be given up by each party is not equal. Insurance contracts are of this type, as the policyholder pays a premium and may collect nothing from the insurer or may collect a great deal more than the amount of the premium if a loss occurs. Not to be confused with contract of adhesion.

Alien insurer - An insurance company formed under the laws of a country other than the one it is doing business in.

Alienated premises - Property that has been sold by an insured.

All risks - A property policy expression now out of fashion. It was used to designate contracts that promised coverage against ``all risks of direct physical loss'' in contrast to forms that covered for specific, named perils. The word ``all'' came to be perceived as open to broader interpretation than insurers intended and it was dropped in favor of the promise to cover ``risks of physical loss.'' See Named perils and also Open perils.

Allied lines - Lines of insurance that cover for perils other than fire, that are usually sold with fire insurance, e.g., fire and allied lines.

Alternative dispute resolution (ADR) - Methods other than lawsuits that are designed to resolve legal disputes. Examples are arbitration and mediation.

Ambiguity - A standard policy provision that proves to be ambiguous may be interpreted in the light most favorable to the insured.

American Agency System - The system of selling insurance through agents who receive commissions in lieu of salary.

American Association of Insurance Services (AAIS) - An association of insurance companies providing filing and various technical services on behalf of its member companies.

Americans with Disabilities Act (ADA) - Passed by Congress in 1990, this act requires that ``reasonable accommodation'' be made in public accommodations, including the workplace, for those with physical or mental disability.

American College, The - An educational institute conferring the Chartered Life Underwriter (CLU) designation.

American Lloyds - Unincorporated associations of individual underwriters who assume specified portions of liability under each policy issued. There is no connection with Lloyd's of London.

Anniversary date - The anniversary of the original date of issue of a policy as shown in the declarations.

Annual aggregate deductible - A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.

Anti-coercion laws - Usually contained in a section of the state code entitled ``Unfair Trade Practices,'' these provisions define the use of coercion as an unfair practice and, hence, a violation of the state law.

Anti-rebating laws - Laws found in all but two states which prohibit an agent's refunding part of a commission to an applicant as an inducement for placing insurance through the agent. California and Florida allow rebating of commissions on a limited basis.

Apparent authority - The perceived ability of an agent to bind an insurance contract to an insurance company. If an agent or agency holds themselves out as representing a particular company it is reasonable for the public to assume that such authority is established contractually, even if it is not.

Apportionment - The method of dividing a loss between multiple insurers that cover the same loss.

Appraisal - A determination of the value of property for the purposes of determining the proper amount of insurance to be bought or in adjusting a loss.

Appurtenant structure - Another structure on the same premises as the principal structure. A detached garage on a dwelling premises is ``appurtenant'' to the dwelling. Older homeowners forms refer to the ``other structures'' protected under the HO Coverage B as ``appurtenant structures.''

Arbitration clause - The clause in an insurance policy that spells out how disagreements over a claim are settled.

Arson - The intentional setting afire of property.

Assigned risk - A risk not be generally acceptable to any insurance company but for which the law says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state's unacceptable drivers as insureds.

Assigned risk plan, see Auto insurance plan.

Association captive - A captive insurer owned by the members of a sponsoring organization or group, such as a trade association.

Assumed liability - Liability assumed under contract or agreement. More commonly known as contractual liability.

Assured - A party who is a potential beneficiary of an insurance contract.  The synonym ``insured'' is more commonly used.

Attorney-in-fact - An individual who is given authority to execute legal documents, including bonds; or the manager of a reciprocal exchange, which is an insurance arrangement whereby risk is transferred to other members. The attorney-in-fact need not be a lawyer.

Attractive nuisance - Condition that can attract and injure children. The occupants of land on which such a condition exists are liable for injuries to children. Examples of attractive nuisance: swimming pools; earth moving equipment; playground equipment.

Audit - Some policies (such as workers compensation) are written subject to an audit. Since workers compensation premium is based on the insured's payroll, the insurer is entitled to audit the insured's records at the end of the policy to verify that it has collected an adequate premium for the amount of payroll to which it was exposed.

Authorized insurer - An insurer granted permission by a state to sell specific lines of insurance within that state.

Auto insurance plan - Program set up by various states to ensure that everyone with a valid driver's license will be able to purchase auto insurance. All auto insurers operating within a state are assigned insureds in proportion to the amount of auto premium written.

Automobile liability insurance - Insurance in which the insurer agrees to pay all sums for which the insured is legally obligated because of bodily injury or property damage arising from the ownership, maintenance, or use of an auto.

Automobile medical payments - Insurance applying to the medical, hospital, or funeral expenses of anyone injured while on or in an insured automobile. The coverage is not dependent on liability, being triggered simply by an accident. It may be included in either the Business Auto Policy or the Personal Auto Policy. See also Premises medical payments.

Auto physical damage insurance - Insurance on the vehicle, itself. This usually is broken down into collision and other than collision coverages.

Automobile shared market - A program in which all automobile insurers in each state make coverage available to car owners who are unable to obtain auto insurance in the voluntary market.

Bailee - One who has is charged with the care of the property of another. For example, a garage is bailee of a customer's (bailor's) car (the bailment) and a jeweler is a bailee of customers' jewelry while in for repair or appraisal.

Bailees customers' insurance - Insurance designed to reimburse a bailee's customers for loss without regard to liability.

Bailees floater - An inland marine form that covers ð on an open perils basis ð a bailee's interest in personal property of others.

Bailees liability insurance - Insurance covering damage negligently caused by a bailee or employee to goods left in their care.

Bailment - The act of delivering property in trust to another for a limited time and specific purpose.

Bailor - The person delivering property to another in trust.

Bankers blanket bond - A bond designed to indemnify for loss of money, securities, etc., caused by: dishonesty of employees; robbery or theft from the premises; or robbery or theft while the insured property is in transit.

Basic causes of loss - The perils of fire, lightning, and removal of property from premises endangered by those perils as shown in the standard 1943 New York fire policy.

Basic named perils - Covered perils in a property insurance contract: fire, lightning, windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosion and riot.

Beach plans - Sometimes known as windstorm plans or pools, these are plans devised by coastal states to insure the windstorm exposure of coastal properties. The plans operate in a manner similar to a joint underwriting association, with participation by all insurers operating within a state.

Bench error - A mistake in the production process of a product that causes a loss. Such losses are usually covered.

Betterment - A term used to express the difference in the value of property before loss and after restoration. If a 20-year roof is damaged by an insured peril and it has to be replaced in its 15th year and the restoration renews the 20-year life expectancy, the owner has obtained a 15-year betterment in the roof. Without replacement cost insurance on the roof, the owner is expected to reimburse the insurance company for the ``betterment'' entailed in the restoration. Also see Improvements and betterments.

BI - A shorthand expression for ``bodily injury.''

Bid bond - Guarantees an owner, the ``obligee,'' that the accepted contractor will actually undertake the work and that the contractor will furnish performance, payment, and, perhaps, maintenance bonds ð or that the contractor will pay the owner the difference between the amount of the contractor's accepted bid and the bid of another contractor who has to be called in to complete the project.

Binder - An insurer's agreement, by way of an agent, to provide nonlife insurance on the spot, pending issuance of the policy contract.

Binding authority - The authority extended to an agent by an insurer to provide insurance, usually on a temporary basis, until a policy can be written.

Blanket bond - An employee dishonesty or fidelity bond covering all persons of a group or class; as opposed to bonds naming specific individuals (name schedule) or positions (position schedule).

Blanket coverage - A means of insuring various items of property under one limit of liability.

Blanket insurance - Insurance covering multiple items of property as a group. Covered property may be at one location or several.

Block policy - A block policy provides a form of inland marine insurance. It covers loss to the property of a merchant, wholesaler, or manufacturer including: property of others in the insured's care, custody, or control; property on consignment; property sold but not delivered. A block policy covers loss caused by most perils (including transportation), subject to certain limitations as specified in the policy exclusions. Common block policies are jeweler's block and furrier's block policies.

Bobtailing - A trucking term that means the driving of the tractor portion of a semi after the trailer has been delivered and removed. A special trucking endorsement, Truckers Insurance for Non-Trucking Use, may be necessary when bobtailing.

Bodily injury - A term that refers to physical injury, sickness, or disease, or death resulting therefrom. In some jurisdictions ``bodily injury'' includes emotional injury.

Bodily injury liability - Legal obligation that flows from the injury or death of another person. This insurance is commonly limited to bodily injury liability derived by way of negligence, but coverage of liability by way of contract (holding another harmless) is also possible.

Boiler & machinery insurance - Fired vessels, steam generators, mechanical and or electrical objects and turbines, are all examples of ``objects'' that might be listed for coverage under a boiler and machinery policy. Coverage is for damage to covered property caused by an accident to an object identified in the policy's schedule. Coverage includes extra expense, automatic 90-day coverage at new locations, defense against liability claims, and supplementary payments like those provided under public liability policies.

Bond - A document for expressing surety. A bond engages three entities; the ``surety'' (bonding company) sells the bond to the ``principal'' for the purpose of paying the amount the principal will owe to the ``obligee'' upon failure of the ``principal'' to perform some act or provide some service under agreed terms.

Bond, fidelity - A bond that guarantees the principal's honesty.

Bond, surety - A surety bond is the financial assumption of responsibility by one or more persons for fulfilling another's obligations.

Book of business - The accounts written by an agent or company. It can be expressed in a number of ways such as ``total book'' of business, ``book of auto business,'' ``homeowners business,'' etc.

BOP (Businessowners policy), see Businessowners policy.

Bordereau - A written schedule of insureds, premiums, and losses submitted to reinsurers under certain types of reinsurance agreements.

Boycott - Another practice defined as ``unfair'' under most states' codes. Such a practice which occurs when someone in the insurance business refuses to do business with someone else until that person complies with certain conditions or concessions.

Broad form perils - A property insurance designation for coverage that extends beyond the basic named perils.

Broad form property damage endorsement - A commercial general liability endorsement that removes the care, custody, or control exclusion relating to the property of others and replaces it with a less stringent one.

Broker - One who represents the insured in arranging insurance. A broker may also serve as the agent of an insurance company. Typically, a broker does not have binding authority.

Builders risk insurance - A variation of property coverage specifically applicable to construction projects. It is commonly written in an amount to cover the value of the structure when completed. The premium charged takes into account that values at risk increase gradually over the term of the policy.

Bumbershoot - A form of coverage similar to an umbrella, having to do with ocean marine risks.

Business Auto Policy (BAP) - A standardized contract for writing liability and property coverage on commercial autos.

Business income coverage - Insurance protecting the income derived from an insured's business activities when curtailed by a covered peril. Coverage includes reasonable extra expense the insured undertakes to expedite return to business operations.

Business income, dependent properties - Covering loss to an insured when the operations of a key supplier, customer, or leader property on which the insured's operations are dependent, are shut down by a covered peril. Also referred to as contingent business income.

Business personal property - A term relating to ``contents'' of a commercial enterprise. It may include furniture, fixtures, machinery and equipment as well as stock, all other chattels owned by the insured, and even use interest in building improvements and betterments.

Businessowners policy (BOP) - A package of property and liability insurance for small and medium size businesses, the BOP owes its origin to the success of the homeowners policy.

Buy-back deductible - A deductible that may be eliminated for an additional premium in order to provide first-dollar coverage.

Calendar year experience - Underwriting result based on earned premiums and booked incurred losses for the same calendar year reporting period, regardless of the dates of the loss events. Booked incurred losses include paid losses, beginning of year to end of year changes in case reserves, and IBNR.

Cancellation: flat, pro rata, or short rate - In a flat cancellation the full premium is returned to the insured. A pro rata cancellation means the insurer has charged for the time the coverage was in force. Short rate cancellation entails a penalty in excess of pro rata for early termination.

Capacity - An insurer's (or reinsurer's) top limit on the amount of coverage it has available. The term may also refer to the total available in the respective insurance or reinsurance market.

Captive agent - A representative of a single insurer. In the case of captive agents, the insurer owns and controls expiration dates and policy records. A captive agent is a member of what may be called an exclusive agency system.

Captive insurer - An enterprise with all the authority to perform as an insurance company, but is organized by a parent company for the express purpose of providing the parent company's insurance.

Care, custody, or control - An expression common to liability insurance contracts. It refers to an exclusion in the policy eliminating coverage for damage to property of others that is in the insured's ``care, custody, or control.'' The insured has a bailee relationship to the property, in other words, making the insured liable for the care of the property beyond damage caused by negligence. A bailee's floater is often used to cover the insured's obligation for the care of such property.

Cargo insurance - An inland marine or ocean marine policy covering cargo in the care, custody, or control of the carrier.

Cash flow underwriting - Name given to an insurer's practice of writing business in order to generate greater amounts of cash for investment purposes with little regard for quality of the business.

Casualty insurance - The type of insurance concerned with legal liability for losses caused by bodily injury to others or physical damage to property of others.

Catastrophe (excess) cover - Another term for catastrophe reinsurance, wherein the ceding company is indemnified by the reinsurer after a specified loss amount is reached, for losses caused by catastrophes.

Causes of loss forms - The reference is commonly to property insurance contracts and the form in question details those perils to which the coverage will respond. Though any property insurance contract must name the perils it intends to cover, e.g., crop hail, earthquake, perils of transit, and so on, the most commonly used general forms are the basic and broad named perils forms and the special form. In contrast to the named perils forms, that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to delimit and define the coverage.

Cede - The transfer of all or part of a risk written by an insurer to a reinsurer.

Cedant - A ceding insurer or reinsurer. Ceding means to contractually transfer an portion of a risk or risks to a reinsurer.

Ceding commission - The cedant's acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits, which often is expressed as a percentage of the gross reinsurance premium.

CERCLA, see Superfund.

Certificate of insurance - A written description of insurance in effect as of the date and time of the certificate. The certificate does not ordinarily confer any rights on the holder, i.e., the issuing insurer does not promise to inform the holder of change in or cancellation of coverage.

CGL (Commercial General Liability) see Commercial general liability.

CIC - Certified Insurance Counselor.

CLU - A designation-Chartered Life Underwriter-conferred upon individuals who have successfully completed a series of studies of life insurance and related disciplines designed by the American College. CPCU - A designation ð Chartered Property Casualty Underwriter ð conferred upon successful completion of a series of 10 exams on insurance and related disciplines designed by the American Institute of Chartered Property Casualty Underwriters.

Civil commotion - One of the extended coverage perils, paired with the peril ``riot,'' which refers to a less widespread or generalized event than ``riot'' might be thought to encompass.

Claim Expense - The expense of adjusting a claim, such as investigation and attorneys' fees. It does not include the cost of the claim itself.

Claims-made coverage - A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). This development was in response to ``long tail'' claims, such as those related to asbestosis injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies are written on an ``occurrence'' basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later.

Clash cover - A type of catastrophe reinsurance for casualty insurance. The retention is equal to the highest limit of any one insurance policy covered by the agreement. Clash cover is written to cover all losses from one source, such as a construction site.

Class rates - When property or people share a certain number of characteristics relevant to the cost of providing them with insurance (such as a male driver under the age of 25 without an accident) underwriters can develop insurance rates that reflect the exposures represented by the class and offer insurance based on a class rate rather than by computing individual rates for each member.

Clause - A provision or condition affecting the terms of a contract. Coinsurance, cancellation, and subrogation clauses are typical insurance contract clauses.

Clean-up costs - Generally, those costs associated with the clean-up of pollution.

Close or closely held corporation - A corporation that is owned by a small number of individuals who are related. A close corporation fills its own vacancies.

Coercion - Another act defined by most states as an ``unfair trade practice.'' This one occurs when someone in the insurance business uses physical or mental force to persuade another to transact insurance.

Coinsurance clause - Coinsurance refers to the bargain between commercial property owners and the insurance industry. This clause in property policies encourages the property owner to gauge coverage needs by possible, not probable, maximum loss. With $1 million at risk but a probable maximum loss of $100,000, for example, the property owner would probably buy $100,000 insurance and bank on avoiding the larger disaster. The bargain offered by the insurance industry is a reduced rate per $100 of coverage if the owner agrees to buy coverage at a specified relation (80% commonly) to value (to possible maximum loss in other words). If the insured accepts the bargain but events prove the amount of insurance is inadequate to the stated coinsurance percentage, the insured becomes a coinsurer in the same ratio as the amount of insurance bears to the amount that should have been carried.

Collapse - A property insurance peril, subject to its own specific agreement in property policies, which otherwise insure on an open perils basis.

Collision damage waiver - When paired with an auto rental agreement, the rental car company agrees to waive the renter's responsibility for any physical damage to the rental car in exchange for an additional payment. Sometimes called a loss damage waiver.

Collision insurance - A type of physical damage insurance available for automobiles. Coverage is triggered when damage is caused by striking against another object.

Combined ratio - The sum of an insurance company's loss ratio and expense ratio; used as an indicator of profitability for insurance companies.

Combined Single Limit (CSL) - Liability policies commonly offer separate limits that apply to bodily injury claims and to claims for property damage. ``50/100/25'' is shorthand under such a policy for $50,000 per person/$100,000 per accident for bodily injury claims and $25,000 for property damage. A combined single limits policy might cover for $100,000 per covered occurrence whether bodily injury or property damage, one person or many.

Commercial blanket bond - A bond that covers the named insured against employee dishonesty. A single coverage amount applies to any one loss, regardless of the number of employees involved.

Commercial General Liability (CGL) - The CGL policy is an ISO form, widely used to provide commercial enterprises with premises and operations liability coverage, products and completed operations insurance and personal injury coverage. Premises medical payments coverage is often included as well.

Commercial lines - A distinction marking property and liability coverage written for business or entrepreneurial interests as opposed to personal lines.

Commissioner of Insurance - The official in a state (or territory) responsible for administering insurance regulation; sometimes called the Superintendent or Director of Insurance.

Common area - The part of a building or premises either owned by or used by all tenants or tenant-owners of the building (e.g. the swimming pool at a condominium).

Comparative negligence - A variation of contributory negligence, in which the comparative degree of negligence for each party to an accident is taken into account when awarding damages.

Compensatory damages - The award, usually monetary, that is intended to compensate the claimant for injury sustained.

Completed operations insurance, see Products and completed operations.

Completion bond - A bond that guarantees a lending institution or other mortgagee that a building or other construction that they have lent money on will be completed on time so it can used as collateral on the loan.

Comprehensive personal liability insurance - Provides individuals and family members with protection from legal liability for most accidents caused by them in their personal lives. Note that any legal liability claims submitted while in the course of business activities are not covered.

Comprehensive physical damage (automobile) - Traditional name for physical damage coverage for losses by fire, theft, vandalism, falling objects, and various other perils. On Personal Auto Policies, this is now called ``other than collision'' coverage. On commercial forms, it continues to be called ``comprehensive'' coverage.

Concurrent causation - When two perils contribute concurrently to a property loss, one excluded and the other not, the effect of the exclusion tends to be voided in a policy covering on an open perils basis. A concurrent causation exclusion is found in current forms.

Condition - One of the obligations of either the insured or the insurer imposed in the insurance contract.

Condominium - Type of dwelling where the structure is owned jointly while spaces within the structure are owned individually. Special property and liability forms cover the interests of the condominium association and of unit-owners.

Condominium association coverage - A policy that provides coverage for the building, elements of the building, and liability needs for those who collectively own a piece of property.

Condominium unit owners form - A policy that provides coverage for the personal property, owned elements of a unit, and liability for the individual unit owner.

Consequential loss - An indirect consequence of direct loss to property. Business income may be lost when a store burns down, or frozen goods may spoil when windstorm causes an interruption of power. Consequential or indirect loss is not generally insured by policies covering direct damage (i.e., by fire or wind as in these examples), but insurance is readily obtainable separately for most such consequential exposures ð business income coverage being among the most common.

Construction bond - A bond that guarantees the owner of a building under construction that it will be completed. If the contractor cannot finish the work, the insurer is obligated to see that the work is performed.

Constructive total loss - This condition is said to exist when the cost of repairs exceeds the actual cash value of damaged property.

Contingent business income, see Business income, dependent properties.

Contingent liability - Liability imposed on a business entity (individual, partnership, or corporation) for acts of a third party for which the business entity is responsible.

Contract of adhesion, see Adhesion contract.

Contractors equipment floater - Coverage designed for the special needs of contractors to insure their machinery and other equipment.

Contractual liability - Liability that does not arise by way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord's liability to others for unsafe conditions on the premises. Some such assumptions are covered automatically under the Commercial General Liability form.

Contributory negligence - A defense to a negligence action in which it is asserted that the claimant failed to meet the standard required for his or her own protection, and that that failure contributed to the loss.

Controlled business - The amount of insurance countersigned, issued, or sold by a producer covering that producer's interests, immediate family, or employees. Many states limit the amount of controlled business that may be written by placing a maximum percentage of all business that may be controlled.

Convention (or statement) blank - The uniform annual financial statement that must be filed by all insurers, as prescribed by the National Association of Insurance Commissioners. The convention blank must be filed annually in an insurer's home state and every state in which it is licensed to do business.

Corporation - A business whose articles of incorporation have been approved in some state. For insurance purposes, the type of business structure helps to determine who is insured on the policy.

Countersignature - An authorized signature of agent or company representative on an insurance policy. Usually pertains to policies sold by an agent of the insurer located in another state.

Court bonds, see Judicial bonds.

Coverage trigger - In liability insurance, the ``trigger'' is the event that brings coverage into play. It may be either an occurrence of bodily injury or property damage; or, in a form with a claims-made trigger, the formal making of a claim.

Covered loss - An accident, including accidental damage by forces of nature, that brings a contract of insurance into play.

Credit card forgery - A criminal act involving the illegitimate use of credit cards to obtain goods or money. Limited coverage for such losses is automatically provided in most homeowners policies.

Crime insurance - A broad category covering loss of property through criminal activity-from employee dishonesty to burglary and robbery, computer fraud, and forgery. Crop insurance - Insurance covering growing crops against hail, wind, and fire. Protection against a broader range of perils can often be arranged as well.

Cross liability coverage - In the event of claim by one insured for which another insured covered by the same policy may be held liable, this endorsement covers the insured against whom the claim is made in the same manner as if separate policies had been issued. However, it does not operate to increase the insurance company's overall limit of liability.

Daily - The document ð now more commonly found in electronic than in paper form ð that provides insurer and agent with a quick reference to all pertinent information relative to a contract of insurance: insured's identification, location, coverage, term, premium, and so on. Sometimes referred to as a daily report.

Data processing insurance - Coverage for electronic media, computers, and other electronic data processing equipment.

Deadheading - A trucking term that means the driving of a tractor-trailer that is empty, usually on the return trip from delivering goods. A special trucking endorsement, Truckers Insurance for Non-Trucking Use, may be necessary when deadheading.

Debris removal clause - A consequential coverage commonly included in direct loss policies. For example, fire policies provide limited recovery for the insured's cost of removing the debris after a covered fire. Not to be confused with removal.

Declarations page - That part of a property or liability insurance policy that discloses information pertinent to the coverage promised including names, addresses, limits, locations, term, premium, forms, and so on. The same information, perhaps in a shorthand version, is contained as well in the daily.

Deductible - The part of the loss that is to be borne by the insured.

Demolition insurance - When a building is damaged beyond a certain point, say 50% destroyed, local building codes may direct that the structure be razed. Insurance to cover this exposure (and the lost value of the undamaged but newly razed part) can and clearly should be arranged whenever it exists. Increased cost of construction coverage to meet current building codes should be provided as well.

Dependent properties, see Business income, dependent properties.

Deposit premium - When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll are two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a policy with final adjustment to come at the end of the term.

Depositor's forgery insurance - Coverage against loss due to forged checks, notes, etc. Limited coverage is automatically included in homeowners contracts. Commercial establishments can purchase crime coverage with this feature.

Depreciation - As property ages and becomes worn it often loses value. That loss of value must be taken into account in any adjustment of property insurance that covers loss of actual cash value.

Difference In Conditions (DIC) - Property insurance obtained through the excess and surplus lines market to supplement and expand on the property coverage available through admitted markets. DIC has been called the property umbrella policy.

Direct damage - Physical damage caused to property by a peril such as fire or lightning.

Direct loss - The immediate consequence of the action of an insured peril. For example, a fire-damaged structure is a direct loss because it is damaged directly by fire. In contrast, see Consequential loss.

Direct premiums - Premiums collected from policyholders before premiums for reinsurance are paid.

Direct writer - An insurer that sells coverage directly via its own employees. Contrast with Independent agent.

Directors and officers liability insurance - A form of errors and omissions insurance covering the directors and officers of corporations against suits alleging they committed wrongful act(s).

Discovery period - The period of time, commonly one year, after the termination of a surety bond during which covered loss may be discovered, reported, and covered.

Dishonesty, Disappearance, and Destruction (3-D) policy - The name once applied to a form used for comprehensive crime coverage. Now known as ISO Form C.

Dram shop laws - State laws pertaining to selling and serving alcoholic beverages and the public liability these activities may entail. Also called alcoholic beverage control (ABC) laws.

Dram shop liability insurance, see Liquor liability insurance.

Drive Other Car (DOC) endorsement - A business auto or garage policy endorsement providing coverage for named individuals while driving nonowned autos in situations unrelated to the business of the insured.

Druggists liability insurance - A form of professional liability insurance for druggists.

Duty to defend - Part of the insuring agreement of many policies. The insurer has the duty to defend the insured in event of a covered loss.

Dwelling forms - Forms for coverage of dwellings and personal property that are not eligible for homeowners coverage. Tenant occupied rental properties are commonly insured under these forms.

e-business - The transaction of business by way of electronic media, such as telephones, fax machines, computers, and video-teleconferencing equipment. This generally is broader than e-commerce although some may view e-business and e-commerce as interchangeable terms.

e-commerce - The buying and selling of goods by way of electronic media, such as telephones, fax machines, computers, and video-teleconferencing equipment.

Earned premium - Portion of a premium for which the insurer has already provided protection.

Earnings insurance - A simplified form of insurance covering business income loss, limited to a set percentage of the policy's total amount for recovery of proved loss for each 30-day period.

Earth movement - Subject to an exclusion in property policies, this peril includes earthquake, landslide, mudflow, etc.

Effective date - The date shown in the declarations of a policy upon which coverage is to take effect.

Employee benefits plan liability - Coverage protects the insured employer against claims by employees or former employees resulting from negligent acts or omissions in the administration of the insured's employee benefits programs.

Employee dishonesty coverage - Insurance protecting employers from loss due to theft by their employees.

Employers liability insurance - A feature of standard workers compensation policies, this coverage applies to liability that may be imposed on an employer outside the provisions of a workers compensation law.

Employers nonownership liability - Employers who buy commercial auto coverage on a basis other than ``any auto'' have this exposure whenever an employee uses his or her own auto on the employer's behalf.

Employment practices liability insurance - Coverage against allegations of illegal or discriminatory hiring and firing practices, sexual harassment of employees, and so on.

Endorsement - An amendment to a policy form.

Enterprise-wide risk management - An effort to categorize, measure, and treat all types of risk that may adversely affect a business. It includes both traditional hazard risks and other business risks, such as risks posed by competitors, by economic developments, and natural conditions the business cannot control, and by general operations.

Environmental Impairment Liability Insurance, see Pollution liability insurance.

Equipment floater, see Floater.

ERISA - An acronym standing for the 1974 Employee Retirement Income Security Act which regulates certain employee benefit plans.

Errors and omissions coverage - A type of professional liability insurance, protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured.

Estimated premium, see Deposit premium.

Estoppel - The legal doctrine that a party may be precluded from denying that certain rights exist if, by behavior or implication that such rights did, in fact, exist, another party has acted upon this information to his or her detriment.

Ex gratia payment - A payment by an insurer to an insured for which there is no contractual liability. Such payments are sometimes made as a goodwill gesture if there is the possibility of a misunderstanding or a mistake.

Examination under oath - Found in the conditions section of many insurance policies, the insurer's right to examine an insured under oath following a loss.

Excess insurance - Coverage that applies on top of underlying insurance that is primary, i.e., that pays until its coverage limit is exhausted at which point the excess coverage takes over.

Excess or surplus lines market - The range of insurance available through nonadmitted insurers, i.e., insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements.

Exclusive agency system, see Captive agent.

Expense ratio - The dollar amount that represents acquisition and service costs, expressed as a percentage of written premium.

Experience - A record of losses.

Experience modification - The raising or lowering of premiums under terms of an experience rating plan.

Experience rating - A method of rating that uses past experience to establish current rates.

Explosion - An extended coverage peril and currently a covered peril in nearly every policy of property insurance. The peril remains distinct from steam boiler explosion, which is covered by boiler & machinery insurance.

Express authority - Authority that is distinctly, plainly expressed, orally or in writing. The express authority of an insurance agent is given to the agent bye the insurer in the contract they each sign. See actual authority and implied authority.

Extended coverage - An early and indivisible ``package'' of property insurance perils said to have been devised to make possible the spread of windstorm insurance beyond the highly exposed coastal and plains states. For those whose exposure to windstorm was less, ``extended coverage'' also encompassed smoke damage, hail, riot and civil commotion, aircraft and vehicle damage, and explosion insurance. Included here for historic purposes only since the term, extended coverage, is no longer in general use.
Extended nonowner liability - A personal auto policy endorsement that provides broader liability coverage for specifically named individuals. When attached it covers: (1) nonowned autos furnished for the regular use of an insured; (2) use of vehicles to carry persons or property for a fee; and (3) broader coverage for business use of vehicles.

Extended period of indemnity - A time for recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension included in many business income forms may be extended by endorsement.

Extended recovery period, see Extended period of indemnity.

Extended reporting period, see Claims-made coverage.

Extra expense insurance - Depending on an insured's requirements, this coverage may be purchased as a supplement to business income insurance, applying to expediting expenses that aid in quickly restoring the insured's operations after a covered loss; or it can be the primary coverage sustaining the extra cost of continuing doing business for those insureds who would find it extremely damaging to fail to meet customer commitments, e.g., newspapers, dairies, etc.

Factory mutual - A mutual insurance company insuring only properties that meet high underwriting standards. The typical risk is fire-resistive construction with a central station alarm.

Facultative reinsurance - A separate reinsurance agreement that is negotiated for a particular risk or insurance policy.

Fair Credit Reporting Act - Public Law 91-508 requires that an insurer tell an applicant if a consumer report may be requested. The applicant must also be told the scope of the possible investigation. Should the application be declined because of information contained in that report, the applicant must be given the name and address of the reporting agency. The insurer may not reveal the contents of the report. Only the agency that compiled the report may release its contents.

FAIR plan - An acronym for Fair Access to Insurance Requirements, these plans have been established in many states to make fire and extended coverage (and homeowners in some states) available in areas otherwise not addressed by the voluntary market.

Fair rental value - An amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable.

Farmowners-ranchowners policy - A homeowners-type package policy adapted to include farm and ranch exposures.

FEMA - Federal Emergency Management Agency. This agency administers the National Flood Insurance Program.

Fidelity bond, see Employee dishonesty coverage.

Fiduciary - A generic term for persons or legal entities such as executors, trustees, and guardians appointed by the court, under a will, or by a trust to manage, control, or dispose of the property of others.

Fiduciary bonds, see Judicial bonds.

Fiduciary liability insurance - This insurance covers claims arising from: (1) a breach of the responsibilities or duties imposed on a benefit plan administrator; or (2) a negligent act, error, or omission of the administrator.

File and use rating laws - State laws that permit the use of new rates by an insurance company without first obtaining the approval of that state's insurance department.

Financial responsibility clause - The clause in a auto policy stating that, when the policy is certified as future proof of financial responsibility, then the policy will comply with the financial responsibility laws to the extent required.

Financial responsibility law - When applied to automobile operations, this term signifies the minimum statutory limits of an operator's responsibility for bodily injury and property damage caused by negligent operation of the vehicle.

Fine arts floater, see Floater.

Fire - Combustion evidenced by a flame or glow. Insurance distinguishes between a hostile fire (one out of bounds) and friendly fire (such as that contained within the firebox of a stove).

Fire department service charge - A fee that may be imposed by a fire department for responding to a call. Most fire coverage agreements include indemnification provisions for such eventualities.

Fire legal liability - Public liability policies routinely exclude coverage for damage to property in an insured's care, custody, or control. This leaves a big gap in a tenant's coverage, a gap partially filled by an exception in the commercial general liability policy that restores limited coverage for fire damage to the landlord's building. Perhaps the best benefit of the exception is to call attention to the exposure so arrangements can be made for broader coverage at appropriate limits.

Fire mark - An insignia, attached to the outside of a house that represented the insurer of the house.

First named insured - An insurance policy may have more than one party named as insured. In such cases, the first named insured attends to policy housekeeping, i.e., pays premiums, initiates (or receive notice of) cancellation, or calls for interim changes in the contract. This is spelled out in commercial policies in the common policy conditions.

Fixtures - Generally, something tangible that is fixed or attached, as to a building, so that it becomes an appendage or structural part.

Flat cancellation, see Cancellation.

Fleet policy - Written for a risk that has 5 or more vehicles.

Flesch test - A method to determine the degree of ease or difficulty for reading material. It counts not only the number of words in a sentence, but also the number of syllables in each word. Some states require that insurance contracts be written so that they have a certain readability level (often, 8th grade).

Floater - An inland marine form covering movable property wherever located within territorial limits.

Flood - A general and temporary condition of partial or complete inundation of dry land caused by the overflow of the natural boundaries of a body of water or the unusual and rapid accumulation of surface water runoff. Some insurance policies that include flood as a covered peril only insure against damage caused by overflow of the natural boundaries of a body of water, but other policies also may insure against surface water losses.

Flood insurance - Flood insurance, like earthquake coverage, is usually only of interest to those relatively few whose property is exposed. Consequently, losses among this small group will be high and premiums can be prohibitive. However, in 1968 the federal government stepped in to help property owners in designated flood plains with the National Flood Insurance Act of 1968. Coverage is not only available, but may even be required to obtain financing for exposed properties.

Flood Insurance Rate Map (FIRM) - Provided by FEMA (Federal Emergency Management Agency), this map delineates base flood elevations and flood risk zones, and is used for rating purposes for flood insurance.

Forgery or alteration coverage - This type of insurance covers loss sustained through forgery or alteration of outgoing negotiable instruments made or drawn by the insured; drawn on the insured's account(s); or made or drawn by someone acting as the insured's agent. This includes loss caused by any of the following: (1) Checks or drafts made or drawn in the insured's name, payable to a fictitious entity; (2) Checks or drafts, including payroll checks, executed through forged endorsements; and (3) Alteration of the amount of a check or draft.

Form - The central document or documents of an insurance contract. Forms may be altered by endorsement.

Fraud - The intentional perversion of the truth in order to mislead someone into parting with something of value.

Friendly fire, see Fire.

Fronting - The practice, in reinsurance, of the ceding company retaining only a small portion of a risk and ceding the remainder to a reinsurer.

Functional replacement cost - The cost to repair or replace damaged property with materials that are functionally the equivalent of the damaged or destroyed property. For example: replacing a solid mahogany banister with a pine banister.

Fur floater, see Floater.

Furriers customers insurance, see Bailees floater.

Gap coverage - Insurance for a lessee designed to cover the difference in selling price between a vehicle's actual cash value, and the payout left on a lease.

Garage policy - One of the early package policies, it is written for automobile dealers and may include liability insurance for garage operations, automobile operations, physical damage coverage on garage owned autos, bailees coverage on customers cars, and auto and premises medical payments coverage.

Garagekeepers liability - A bailee coverage applying to automobiles. Commonly included in garage policies, it may be written to provide coverage for limited perils or for comprehensive physical damage, with or without collision damage coverage. Coverage may be expressed as covering the legal liability of the garagekeeper or amended to cover on a direct basis, as primary insurance or excess.

General liability insurance, see Commercial general liability.

General partners' liability coverage - A general partner's management and fiduciary responsibilities to a limited partnership closely parallel the director's or officer's to a corporation. Exposure occurs when general partners become the financial managers of a limited partnership. The directors and officers of corporate general partners share this type of exposure.

Glass insurance - Commercial property form that covers plate glass, glass signs, lettering, etc.

Gross earnings coverage - An outdated term for business income coverage.

Guarantee funds - State mandated funds collected from licensed insurers and maintained as backup protection for policyholders of bankrupt insurers.

Guiding principles - Suggested procedures for establishing primacy of coverage in situations involving loss under a variety of coverage forms and, perhaps, more than one interested party. Last promulgated in the 1960s, the spirit of the principles survives because insurers apparently find that the prescribed procedures commonly lead to equitable settlements for all parties.

Hangarkeepers legal liability - A bailee coverage for those charged with the care of aircraft owned by their customers.

Hard market - A condition of the insurance marketplace in which insurance is difficult to obtain, and relatively expensive.

Hazard - Generally, a condition that increases the possibility of loss.

Hazardous waste - Term generally used to refer to pollutants or contaminants which result from industrial processing and must be disposed.

Highly Protected Risk (HPR)- A building meeting certain standards of fire protection, which is therefore eligible for a reduced rate.

Hired auto - A nonowned auto that may be borrowed as well as rented or leased by the insured. Personal auto policy insureds are covered automatically for hired autos, but business auto policy insureds may not be.

Hold harmless agreement - A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury or property damage experienced by others on the premises.

Hole-in-one insurance - Coverage designed for amateur golf tournaments in which there is a substantial cash prize for anyone making a hole-in-one.

Holistic risk management,  see Enterprise-wide risk management.

Homeowners insurance - An early and hugely successful example of packaged property and liability insurance. A mid-twentieth century insurance development was introduction of the so-called multiline era in which insurers became empowered to write both property and liability forms of insurance, making way for the first packaging of these coverages within a single policy.

Host liquor liability - Part of the CGL, this covers the incidental serving of alcohol by an insured who is not in the business of serving alcohol.

Hostile fire, see Fire.

HPR, see Highly protected risk.

Housekeeping - A generalized term that refers to the overall care, cleanliness, and maintenance of an insured's property.

Hull insurance - Ocean marine insurance covering physical damage to the ship or vessel insured. Usually, written on an all-risks basis.

Impaired property - A liability exclusion relating to the insured's faulty products or work that results in an impairment to the property to which it is attached assuming the insured can salvage the situation by replacing the property or redoing the work.

Implied authority - Authority granted to an agent, even though not stated, that lets the agent perform tasks usual and necessary to exercise the agent's express authority. See actual authority and express authority.

Improvements and betterments - Anything that adds to the value of property. Commonly used to describe a tenant's use interest in fixtures added to the landlord's building. May also refer to permanent changes made by a condominium unit-owner to his/her unit, such as the addition of new kitchen cabinets.

Increased cost of construction - A damaged building may have to be upgraded to be repaired under building codes in force at the time of reconstruction. Building owners in such situations need guidance in buying insurance to cover this added exposure.

Incurred losses - The value of claim payments plus reserves.

Indemnity - A fundamental concept governing insurance: compensation for loss or injury sustained.

Independent adjuster - An individual or member of a firm who contracts with insurers to investigate claims and suggest appropriate settlements. Contrast with Public adjuster.

Independent agent - A retailer of insurance who, by contractual arrangement with a number of insurance companies, sells and services property and liability insurance. The independent agent ``owns'' the policy information and expiration dates of his client's coverage and thus controls renewals and their placement.

Independent Insurance Agents of America (IIAA) - An association of insurance agents who are independent contractors, and represent one or more insurers. Sometimes referred to as the Big I.

Indirect damage - Sometimes referred to as indirect loss, this is loss resulting from a peril, but not directly caused by that peril. An example is fire damaging a freezer (direct damage), with resultant food spoilage (indirect damage).

Inflation guard endorsement - An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation.

Inherent vice - A flaw in an item of property that will, in time, reveal itself and show the property as damaged. Property insurance does not normally cover such damage.

Inland marine insurance - Property insurance signaling broad coverage of properties exposed to the transportation peril and those subject to being used or kept at a location other than the insured's customary premises. Eligible property is identified in the Nationwide Definition of Marine Insurance.

Innkeepers legal liability - A bailee coverage purchased by innkeepers to cover the property of their guests.

Insolvency fund, see Guarantee funds.

Inspection Report - A report prepared for an insurer by an outside organization. It provides information about an applicant's or insured's physical, financial, and moral attributes.

Insurable interest - The potential for financial loss associated with damage or destruction of property.

Insurable risk - The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market.

Insurance - A mechanism whereby risk of financial loss is transferred from an individual, company, organization, or other entity to an insurance company.

Insurance contract - A legal document defining circumstances under which the insurer will pay, and the amount to be paid. Also see Insurance policy.

Insurance exchange, see Reciprocal exchange.

Insurance Institute for Highway Safety - A not-for-profit research organization, well-known for its auto crash tests.

Insurance policy - The document containing the contract between the insured and the insurer which defines the rights and duties of the contracting parties.

Insurance Services Office (ISO) - An organization providing statistical information, actuarial analyses, policy language, and related services for the insurance industry.

Insurance to value - The concept of purchasing an amount of insurance that closely approximates the value of the property being insured.

Insured - The party or parties whose interests are covered in a nonlife insurance contract. The less common term Assured is sometimes used synonymously.

Insuring agreement - In an insurance contract, the insurer's promise to pay.

Integrated risk financing - A type of risk financing designed to provide integrated protection against catastrophic losses. It may incorporate both traditional and nontraditional types of exposures, or it may include only traditional property and casualty risks.

Interline endorsements - Commercial endorsements that apply, or could apply, to more than one coverage part of a package policy.

Jacket - The cover of an insurance policy; it usually contains the name of the insurer, its address, etc.

Jettison - Act of throwing overboard part of a vessel's cargo or hull in hopes of saving a ship from sinking.

Jewelers block insurance - A policy especially designed for jewelers, it offers a combination of coverages protecting against risks of physical loss to property at the jeweler's premises, property in transit, or customers' property in the insured's care.

Jewelry floater, see Floater.

Joint and several liability - A legal doctrine whereby a creditor or claimant may demand payment or sue one or more of the parties separately, or all of them together.

Joint Underwriting Association (JUA) - These are insurance pools representing all insurers in a state. A few servicing carriers act on behalf of all the insurers, issuing policies, receiving fees, and handling claims. They are reimbursed for losses, and receive fees from the JUA to cover operating costs.

Joint venture - A venture in which two businesses join together to share risk or expertise on a specific project or group of projects.

Jones Act - The federal act through which maritime workers are provided workers compensation coverage (which ordinarily responds to the mandates of particular states).

Judicial bonds - Two types of bonds available to guarantee faithful performance of court appointed duties. Fiduciary bonds guarantee the faithful performance of persons entrusted by the courts in the management, conservation, and disposition of property. Litigation bonds (or ``court bonds'') are required in court actions. Bail bonds and appeals bonds are litigation bonds; the bond amount is forfeited if the bonded person disappears or the appeal is lost.

Jumbo risk - A policy of insurance written with exceptionally high limits.

Keeton-O'Connell, see No fault auto insurance.

Key employee insurance - Life insurance written on the life of an organization's officer or other key employee, the loss of whom would cause the organization financial hardship.

Kidnap-ransom insurance - A specialty coverage offered in the surplus and excess lines markets that responds to ransom demands for recovery of kidnap victims.

Lapse - Termination of a policy because of failure to pay the premium.

Larceny - The unlawful taking of personal property of another.

Latent defect - A hidden flaw that will, in time, cause property damage that is uninsurable. Such damage is uninsurable because the element of chance is no longer present.

Law of large numbers - An underlying principle of insurance: the larger the number of participants in a given arrangement, the more accurate the rate is to the exposure.

Leased worker - A worker leased from another organization on a long-term basis.

Leasehold interest insurance - The insurable interest is that of a tenant who has some years remaining under a favorable lease that is subject to termination upon significant damage to the leased property.

Legal liability - Liability imposed by law; this includes liability based on negligence, strict liability, or contractual liability.

Libel - Written defamation of another's reputation.

Liberalization clause - A feature of property policies that promises that any future change in the company's form that would broaden coverage with no change in premium will automatically apply under the policy currently in force.

License and permit bonds - Suretyship guaranteeing that the principal will abide by the rules and obligations imposed by licensing laws or ordinances. For example, an electrician may have to post such a bond guaranteeing compliance with building codes before being licensed by a municipality.

Limited partnership - A form of partnership that consists of one or more general partners, who actively engage in the business, and one of more special partners, who are not liable for the debts of the partnership beyond their initial financial contribution. Commercial insurance policies usually differentiate in the ``Who Is Insured'' section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Liquor liability insurance - Liability coverage for owners and operators of establishments selling or serving alcoholic beverages.

Litigation bonds, see Judicial bonds.

Livery use - An exclusion in automobile liability policies applying to the use of autos to carry persons for hire as in a taxi service. A share-the-ride car pool is not livery use.

Livestock insurance - Life insurance on livestock covering death by named perils.

Lloyd's of London - An association of individuals, called ``names,'' or groups of individuals who write insurance for their own accounts. Lloyd's had its beginning in 17th century London in Edward Lloyd's coffee house.

Loading and unloading exclusion - A feature of commercial general liability (CGL) policies intended to separate that coverage from the automobile exposure. The CGL coverage ends at the point where an item is picked up for loading onto an auto and resumes at the point where the item is deposited upon unloading.

Long tail - Refers to liability under policies written on an occurrence basis. Claims stemming from injury or damage occurring years earlier can be presented for coverage long after the policy has expired. Contrast with Claims-made.

Longshore and Harbor Worker's Act - A federal law that specifies compensation amounts for injured longshore and harbor workers. Formerly referred to as the Longshoremen's and Harbor Workers Act.

Loss - An unintentional decline or disappearance in value arising from an event.

Loss adjustment expenses - Payments by an insurer for the investigation and settling of claims. They include the cost of defending a lawsuit in court.

Loss assessment coverage - Insurance responding to property or liability loss of a property owners association that are not covered by the association's master policy.

Loss control - Actions to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques.

Loss costs - Loss data that has been modified by insurance advisory organizations by necessary loss development, trending, and credibility processes in order to arrive at the statistical cost of losses to be used in establishing a premium rate.

Loss development - An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to current losses in order to predict what the ultimate cost of losses will be when the claims are closed.

Loss expectancy - The underwriter's calculation of probable maximum loss.

Loss experience - What the loss history has been on a particular line or book of business.

Loss exposure - A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.

Loss frequency - How often a loss occurs over a given space of time.

Loss limit - Commonly used in financial institution bonds, a loss limit is the aggregate amount that will be paid out under the coverage during the policy term. Loss limits also may be used when insuring large property risks where the exposures are spread out geographically. In this type of situation, it is unlikely that all property would be damaged by a single occurrence. Therefore, the amount of insurance may be set at a loss limit per each covered occurrence.

Loss of use insurance - See Additional living expense insurance.

Loss payable clause - A property policy provision that, at the request of the named insured, stipulates that claims tied to losses of certain property will be paid to both the named insured and the party named in the subject clause.

Loss prevention - Refers to engineering or inspection activities carried out to prevent losses in the workplace.

Loss ratio - The ratio of incurred losses including loss adjustment expenses to earned premiums.

Loss payout pattern - Losses often are paid over a period of years, especially in casualty lines of insurance. The payout pattern illustrates the way that claims are paid out from the time they are filed until they are closed.

Loss trending - A method to modify developed losses for changes that will occur in the future. Trend factors are used by rate makers to adjust past losses to more accurately reflect the ultimate value of the losses being used.

Loss triangle - Used to show how losses develop, a loss triangle is a chart that lists losses by line and by year. It shows the value of each set of annual losses at the end of subsequent 12-month periods.

Lost policy release - A means whereby an insured may cancel a policy by signing a statement to the effect that, since his or her policy has been lost, he cannot return it to the insurer to effect cancellation, but still wishes to cancel the policy.

MCS-90 - This is the Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980. The endorsement assures that the trucker is using insurance to comply with the financial responsibility requirements of the act.

Maintenance bond - Guarantees that faulty work or defective materials charged to the bond principals will be corrected or replaced. A maintenance bond may be included among the terms of a performance bond.

Malicious mischief, see Vandalism.

Malpractice, see Professional liability.

Managing General Agent (MGA) - An agent standing between an insurer and other agents. The MGA sells to retail agents, who then sell to the consumer. MGAs often are said to have the pen because they are given the authority to accept, underwrite, and price submissions received from retail agents.

Manufacturers and Contractors liability (M&C) - The premises and operations liability exposures of manufacturers and contractors covering third parties for bodily injury or property damage negligently inflicted in the course of daily activities.

Manufacturers Output Policy (MOP) - Policy originally designed to cover property of a manufacturer being processed at another company; it covers personal property away from the premises on an open perils basis.

Manufacturers selling price clause - Clause stating that finished goods are valued for insurance purposes at their selling price rather than their cost of manufacture.

Manuscript policy - An insurance policy covering property or liability exposures (or both) that is uniquely assembled from standard or specially created forms to suit the needs of an insured.

Marine insurance - Insurance primarily concerned with transportation exposures and property that is commonly moved around from place to place. In America, the field is divided between Inland marine and Ocean marine.

Maritime coverage - Crew members of vessels are subject to Admiralty Law and may sue their employers for work-related injuries because state workers compensation laws do not apply to them. Therefore, special coverage must be purchased for this exposure.

Market value - The price at which insured property could have been sold just prior to its loss or damage. Along with cost new minus use deprecation, market value is but another gauge used to determine the loss settlement to which an insured is entitled. The insured may choose the gauge that produces the most favorable outcome.

Market value appraisal - An appraisal to determine the market value of a building and related personal property.

McCarran-Ferguson Act - Passed by Congress in 1945, this act states that regulation and taxation of insurance by the states is in the public interest, and that congressional silence should not be construed as a barrier to state regulation.

Medical malpractice - Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform.

Medical payments insurance - A coverage found in auto and liability policies that pays medical expenses to injured persons without regard to liability.

Merit rating - A form of auto rating in which an insured's past experience as well as anticipated experience is taken into account when arriving at a rate.

Minimum premium - An insurer's lowest charge for an insurance policy.

Misrepresentation - Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to an insured.

Mobile equipment - Included for coverage under the commercial general liability form, this term relates to land vehicles used in ways that take them out of an explicit automobile liability exposure (e.g., vehicles used only on the insured premises, to carry certain permanently attached equipment, that are not required to be registered, or are designed for solely for off-road use).

Model bill - A bill drawn up for insurance regulatory purposes by the National Association of Insurance Commissioners, with the recommendation that it be implemented by the states.

Monoline policy - An insurance policy covering one subject of insurance, as opposed to a combination or multiline policy.

Monopolistic state fund - Five states have their own system for providing reparations to injured employees eligible under the state's workers compensation act. Private insurance companies may not compete. The states are North Dakota, Ohio, Washington, West Virginia, and Wyoming.

Moral hazard - As physical hazard relates to susceptibility to fire or wind, the term moral hazard relates to susceptibility to loss through moral lapse of the owner (e.g.,Burn the house down and collect from the insurance company before losing it in a foreclosure to the finance company.).

Morale hazard - The term morale hazard addresses the issue of an apathetic insured (e.g., It's insured, let it burn.)

Mortgage holders clause - A standard property policy provision that creates elements of a separate contract between a mortgage company and an insurance company. Any loss to building or structures will be paid to the mortgage company and insured jointly and any act of the insured voiding coverage will not affect the mortgage holder without it first being given an opportunity to comply with the insurer's needs.

Motor Carrier Act of 1980 - A federal law that deregulated the United States trucking industry and transferred the enforcement of financial responsibility requirements for truckers to the Bureau of Motor Carrier Safety, U.S. Department of Transportation. Insurance is one method of complying with the financial responsibility requirements.

Motor truck cargo policy - Two forms of inland marine coverage are associated with this title, one for carriers and one for owners. As a carrier, the insured is protected for legal liability relating to property of others in the course of transport. As an owner, the insured is protected for in-transit damage to its own property.

Motor vehicle record (MVR) - An official record of a driver's accidents and traffic violations kept by the licensing state(s). Often used to determine eligibility and/or premiums for auto insurance.

Multiline era - During the first half of the twentieth century, insurers were licensed to write property insurance or liability insurance but not both. Two insurers were needed to write automobile liability and physical damage insurance, for example, in a contrivance called a combination policy. Not long after World War II, states began licensing insurers to write both forms of insurance introducing what was then called the multiline era.

Mutual insurance company - A cooperative insurance company organized and owned by its insureds.

Mysterious disappearance - A named peril in some forms. Either theft or unexplained disappearance of covered property from a known location may activate coverage.

Named insured - The party or parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions, but any such right is by way of the agreement between the named insured and the insurance company.

Named nonowner policy - Issued to someone who does not own an automobile, but who drives borrowed or rented autos.

Named perils - A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for the named peril of fire.

National Association of Insurance Commissioners (NAIC) - An association of insurance commissioners and superintendents formed to share information and develop common laws and procedures for insurance regulatory purposes.

National Association of Insurance Women (NAIW) - An international professional insurance organization.

National Association of Professional Surplus Lines Offices (NAPSLO) - Trade association of and providing services to surplus and excess lines agents and brokers.

National Council on Compensation Insurance (NCCI) - National association that collects, tabulates, and provides data used in formulating rates for workers compensation insurance.

National Flood Insurance Program (NFIP) - A federal program through which persons with property located in predefined flood plains can obtain flood coverage. See Flood insurance.

Nationwide Definition of Marine Insurance - A document published by the National Association of Insurance Commissioners that was rooted in an older (1933) definition of ``...Insuring Powers of Marine and Transportation Underwriters''. In general, the definition specifies property that may be insured under marine contracts such as property in inland transport and property regularly or routinely in transit, e.g., contractors equipment.

Negligence - Action or failure to act that is outside the realm of what would be considered appropriate by ordinary, reasonably prudent persons.

Net loss - The amount of a loss, after deductions for salvage, other insurance, and any subrogation, that an insurer is responsible for.

Net premium - Premium less expense, such as commission.

New York Standard Fire Policy - Once the benchmark of property policies, it was adopted for use in all but a handful of states. The familiar provisions of its 165-Numbered-Lines, e.g., cancellation, mortgagee, appraisal clauses, etc., survive in Insurance Service Office property policies as well as in independently produced forms.

No Benefit To Bailee - A clause in inland marine forms that prevents a person in the possession of property of others from benefiting from any insurance the owner has on the property.

No-Fault Auto Insurance - A few states have laws that partially exempt drivers from legal liability for auto accidents. In these no fault states car owners buy insurance to protect themselves and their passengers from the economic and medical effects of auto accidents in addition to liability insurance at whatever limit the statute decrees. Professors Robert Keeton and Jeffrey O'Connell gave the no fault notion impetus with the 1967 publication of their study After Cars Crash.

NOC - Underwriter's shorthand derived from general liability and workers compensation rating tables that stands for not otherwise classified meaning no more specific classification is available-as in Clerical Office Employees NOC.  

Nonadmitted insurers, see Excess or surplus lines market.

Nonowned auto - This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees' cars used in company business are commonly classified this way. The employer's auto liability cover for use of nonowned autos is covered by entry of symbol 1 (any auto) or symbol 9 (nonowned autos) on the declarations page.

Nonresident agent - An agent who does not reside in the state in which he or she is licensed.

Nose coverage - This is the opposite of Tail coverage, although it fulfills the same need. Nose coverage most commonly provides prior acts coverage for insureds who are moving from a claims-made coverage form to an occurrence coverage form. It is provided by the replacement policy.

Notice of loss - Notice the insured provides to the insurer that a loss has occurred.

Nuclear energy insurance pools - Any of the insurance pools designed to provide property and/or liability coverage for organizations that handle substantial quantities of nuclear material.

Nuisance Value - The amount for which an insurance company will settle a claim-not because it is a valid claim but, because the company considers it worth that amount to dispose of it.  

Object, see Boiler & machinery insurance.

Obligee - A term used in surety bonds to refer to the individual or firm that is to benefit from the bond's protection. A performance bond, for example, provides the obligee property owner with recourse if the bonded contractor, the principal, fails to perform.

Obligor - A term used in surety bonds to refer to the individual or firm bound by an obligation. Also known as the principal.

Occupancy - In general, a condition affecting the desirability of property policies.

Occupational Safety and Health Act (OSHA) - Passed in 1970, this law promulgated strict work-safety regulations, and set up the mechanism to enforce these rules through fines for violations, and closure of unsafe plants.

Occurrence - In general, an event that triggers coverage under any policy. Specifically, an event that triggers coverage under an occurrence-based liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired. See Claims-made for the alternate arrangement. Also see Accident.

Ocean marine - Insurance coverage for vessels and property in ocean shipping. River marine is the term referring coverage for inland shipments on water. Motor truck cargo refers to coverage for property transported over highways.

Off premises cover - Commercial property policies commonly establish a small coverage limit that applies to property temporarily away from the insured's place of business.

Omnibus clause - An agreement in most automobile liability policies and some others that extends the definition to include others without needing to name them. An example would be a policy that covers the named insured and those residing with him.

Open perils - Property coverage that applies to risks of loss on a general basis, in contrast with policies that cover for specifically identified perils, see Named perils. The old term for open perils was all risks.

Open rating - A state rating system that allows the insurer to use rates without prior approval. Also referred to as open competition.

Operating ratio - The sum of the combined ratio plus investment income.

Ordinance or law coverage - This insurance responds to property loss or damage necessitating repair, demolition, or rebuilding in accordance with current building codes.

Ordinary payroll - Payroll allotted to employees whose services could be curtailed in event of a long-term shutdown of a business without a harmful effect on reopening. This figure is important in calculating business income insurance exposures.

Other than collision insurance (automobile), see Comprehensive physical damage (automobile).

Other insurance - When two or more policies cover the same interests for the same exposures, each policy is said to represent other insurance to the other. Most insurance policies contain clauses that specify how or if claims will be paid if other insurance exists for the same exposures.

Outer Continental Shelf Lands Act - This act makes the Longshore and Harbor Workers Compensation Act apply to work involving the development of the natural resources of the outer continental shelf. A special endorsement, the Outer Continental Shelf Lands Act Coverage Endorsement, amends workers compensation policies to provide coverage for this exposure.

Owners and Contractors Protective (OCP) Liability coverage form - Provides coverage for the liability of an owner of land on which a building is being constructed for the acts of the contractor handling the construction.

Owners, Landlords, and Tenants legal liability (OL&T), see Premises and operations liability.

Ownership of expirations - Refers to the ability of an independent agent to place a risk with any of the companies that he or she represents. Unless that customer goes to another agent, the current agent owns the policy and the right to place it as he/she sees fit.

Package policy - Any combination of insuring agreements that combines property and casualty coverages. Homeowners, businessowners, and garage policies are examples.

Paid losses - The losses that have been paid for a claim.

Pair and set clause - Clause that stipulates that partial loss to a pair or set of items will be valued in terms of the lost item, not on the basis of reduced value of the pair or set.

Partial loss - A property loss that is less than a total loss, see Constructive total loss.

Partnership - A business model in which two or more individuals join together to conduct business and share profit and losses. Commercial insurance policies usually differentiate in the ``Who Is Insured'' section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.

Pay-at-the-pump - A device for making sure all motorists are insured; the theory is that premiums for basic liability coverage could be collected through taxes at the gasoline pump in a relatively painless manner, thus eliminating the uninsured motorist.

Payment bond - Sometimes also called a labor and materials bond, this bond guarantees that bills owed by the contractor will be paid as they come due. The agreement may be incorporated into the performance bond.

PD - An abbreviation for property damage.

Peak season endorsement - Instead of buying insurance amounts reflecting values at the height of inventory, some enterprises are able to forecast times when values will be at their peak and use this endorsement to increase the amount of insurance during that specific interval.

Pen, The, see Managing General Agent (MGA).

Per occurrence/per loss excess reinsurance treaty - An agreement under which losses above a certain dollar amount are ceded to the reinsurer, who is responsible for all losses from any one exposure above this amount up to the reinsurance limit. The retention is expressed as an amount incurred per occurrence. An occurrence may be one hurricane, one flood, or one accident that results in injuries to multiple people.

Per risk excess reinsurance treaty - Similar to a per occurrence/per loss excess treaty except in the matter of the retention. The retention applies separately to each subject of insurance.

Performance bond - A bond that guarantees the property owner (the obligee) that the contractor with the winning bid on a job will perform as promised and on time.

Peril - A potential cause of loss.

Perils of the sea - Somewhat akin to open perils on land, the term refers to any potential cause of loss derived from shipment on a seagoing vessel.

Period of restoration - The period of time following a loss that is necessary to restore a business or organization to a pre-loss condition.

Personal articles floater - Before the advent of packaged forms and broad coverages, households commonly had fire insurance on dwelling and personal property with the possible addition of extended coverage. The personal articles floater is an inland marine form that was used by the affluent for scheduling open perils coverage for various articles and classes of valuable personal property. A homeowners endorsement accomplishes the same thing today and the personal articles floater is no longer widely written.

Personal auto policy - The form currently promulgated by Insurance Services Office (ISO) for coverage of personal auto liability and physical damage exposures.

Personal injury - Distinguished from bodily injury, this term relates to injury inflicted by way of false arrest, invasion of privacy, malicious prosecution, and so on. It is written as Coverage B of the commercial general liability forms and as homeowners Coverage E.

Personal Injury Protection (PIP) - The section of an auto policy in a no-fault state that responds to physical injury, loss of income, etc., of the insured regardless of fault.

Personal liability insurance - Insurance for individuals or members of a household offering protection against claims by third parties (outsiders) alleging bodily injury or property damage due to negligence. See also Premises medical payments.

Personal lines - Insurance covering the liability and property damage exposures of private individuals and their households. Contrast with Commercial lines.

Personal property - Term used in insurance to distinguish chattels from real property.

Physical hazard - A hazard that arises from the material, structural, or operational features of the risk itself apart from the persons owning or managing it.

Physicians and surgeons professional liability insurance, see Professional liability.

Plate glass coverage - Provides special protection, except for the perils of war, nuclear reaction, and fire. (Fire is covered under the building policy.) This coverage is for full replacement cost and covers the expense of repairing frames, installing temporary plates, or boarding up openings.

Policy year - Unique to the insurance business, this is a means of cost accumulation in which the aggregate transactions of all policies becoming effective in a given year determine the financial performance of those policies.

Policyholder, see Insured.

Policyholders surplus - The amount of money available to an insurer to meet its obligations to its policyholders, after subtracting liabilities.

Pollutant cleanup and removal - An aggregate first party coverage that applies to the insured's expense in extracting pollutants from land or water at the insured's location, if the release of the pollutants is caused by or results from a covered loss.

Pollution liability insurance - Coverage for bodily injury or property damage caused by a ``pollution incident.'' Insurance Services Office has two forms, one limited to on-site clean up of pollution spills.

Pool - An organization in which insurers cover certain types of risks as a group and share premiums, expenses and losses. Pools are often used to underwrite larger risks.

Portfolio - All of an insurer's in-force policies and outstanding losses, respecting described segments of its business.

Power-of-attorney - Commonly used in bonding, this document conveys authority for the individual(s) named on it to execute bonds and other legal documents.

Premises - Generally, a piece of land with a building or buildings upon it.

Premises and operations liability - Once known as owners, landlords, and tenants legal liability, or as manufacturers and contractors liability, depending on the business's activity, the term refers to the liability exposure of business entities to third parties (customers, guests, and passers by) who may become injured or have property damaged through the negligent acts of the business persons, their agents, or employees. Coverage of this exposure is by way of the commercial general liability policy. Contrast with Products and completed operations liability.

Premises and operations medical payments - Bodily injury rather than liability is the trigger for this coverage. Sometimes referred to as ``customer good will insurance,'' it is a relatively inexpensive addition to the commercial general liability policy and an automatic feature of personal liability protection. Since it responds to injury of customers or guests without regard to fault, it is sometimes effective in heading off a potentially much more serious liability claim against the owner or tenant of the business premises or private residence.

Premium - Term for the amount of money the insured pays the insurer to purchase insurance.

Pressure vessel - In boiler and machinery insurance, a type of container designed to hold liquids or gasses under pressure. Types are categorized as fired (such as a boiler) and unfired (such as an oxygen or hydrogen tank).

Price-Anderson Act of 1957 - Federal law that requires evidence of financial responsibility for all privately owned nuclear reactors, spent fuel reprocessing plants, and for fuel fabrication plants licensed to process five or more kilograms of plutonium.

Primary insurance - The first policy or coverage to apply. Contrast with Excess insurance.

Principal - Used in suretyship, it refers to the individual whose performance is guaranteed.

Prior approval - Indicates that an insurer must have rate or form changes formally approved by the state insurance department before it can use them.

Private passenger automobile - A four-wheeled motor vehicle, subject to state registration laws, designed to carry passengers (such as a car, station wagon, SUV, or van) on public roads.

Pro rata cancellation, see Cancellation.

Producer - A term identifying the insurance agent, field rep, or other employee who sells insurance.

Product recall insurance - Coverage for the costs of recalling a product known, or suspected to be, defective.

Products and completed operations liability - The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractor whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does not in any way constitute a guarantee of either the insured's product or work. Contrast with Premises and operations liability.

Professional Insurance Agents (PIA) - Trade association of insurance agents.

Professional liability - A form of errors and omissions insurance, (sometimes called malpractice coverage for errors alleged against those in the healing and legal professions). Arbitrarily it seems, errors and omissions is the term applied most often to insurance covering liability for mistakes in matters affecting property, i.e., coverage for Insurance Agents E&O, Architects E&O while professional liability is used in reference to coverages such as Druggists Professional Liability, Physicians and Surgeons Professional Liability, and Lawyers Professional Liability.

Promulgate - To develop, file, publish, and put into effect insurance rates or forms.

Proof of loss - Following a loss, a formal statement given by an insured to the insurer that includes details of the loss such as the original cost of damaged or destroyed property.

Pro rata or proportional reinsurance - A certain portion of every risk is ceded under a proportional agreement. The insurer and reinsurer agree to share a portion of all insurance, premium, and losses in the same amount. The insurer is paid a commission for ceding the risk portion and premium to the reinsurer.

Prospect - A potential buyer of an insurance policy or program.

Protection and Indemnity (P&I) insurance - The nautical equivalent of bodily injury and property damage liability.

Proximate cause - That event which, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down.

Public adjuster - An individual or member of a firm who contracts with private parties to aid with the preparation of loss statements and presentation to insurers. Contrast with Independent adjuster.

Public liability insurance - General term for any liability coverage for claims brought against the insured by a third party or member of the public.

Public official bond - A performance bond for holders of public office.

Punitive damages - An award for damages above and beyond the requirements for compensating third parties for injury or damage. As the word implies the award is meant to punish the offender. Most states and territories permit punitive damages awards to be covered by liability insurance.

Pure risk - The only consideration is the possibility of loss or no loss, but not making a profit. Contrast with speculative risk.

Quota share reinsurance - A type of pro rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a pre-determined portion of all insurance, premium, and losses. The primary insurer's retention in a quota share agreement is expressed as a percentage of the amount insured.

Railroad protective liability - Liability coverage designed to protect a railroad from liability claims arising out of the operations of others on or adjacent to railroad property.

Rain insurance - A weather coverage that indemnifies a promoter or organizer against loss of income because of the cancellation of an outdoor event due to rainfall that exceeds a specified amount during a specified time period.

Rate filing - Documentation filed by an insurer with the state requesting a change in the existing rates.

Rating bureau - A private organization that classifies and promulgates manual rates (or loss costs).

Real property - Land, buildings, and other structures (such as a swimming pool or tool shed).

Rebate - In insurance, a portion of an agent's commission returned to a customer as an inducement to place the insurance through the agent. This practice is illegal in all but two states as against public policy.

Reciprocal exchange - A type of insurance managed by an attorney-in-fact in which members pay premiums, and share in losses equally. Membership is required for insurance.

Redlining - Unfair discrimination based not on the risk's characteristics but on its location. The term is commonly associated with an insurer's refusal to consider insuring any home or business within a specific area marked by a line drawn on a map.

Reinsurance - The business of insuring insurance companies. By ceding a portion of its business to a reinsurance company, an insurer spreads the risk of exposure to catastrophic loss.

Reinsurer, see Reinsurance.

Removal - Removal was a provision of the New York Standard Fire Policy in which the insurer agreed to cover the cost of removing covered property from the path of a fire. Presently, property policies express the agreement in terms of preservation of property from imminent danger of damage from any covered peril. Not to be confused with Debris removal.

Renewal - The extension of the term of coverage of an expired policy, commonly by replacement with another policy effective on the date of expiration of the previous policy.

Rent-a-captive - A specialized form of captive insurance company operation designed for businesses that do not want to own a captive but want to obtain some of the advantages offered by captives. A rent-a-captive is formed by a group of investors and operated as an income-producing business. Insureds who wish to participate rent space in the captive instead of setting up and capitalizing their own captive insurance company.

Rents insurance - A form of business interruption insurance for a landlord. It protects building owners against loss of income when the building cannot be rented because of damage from any of the insured perils. It provides income while an insured's building is untenantable.

Rental value insurance - Refers to protection of either a landlord's rental income or an owner occupant's economic stake in use of the subject structure. Either interested party can obtain coverage by way of an Insurance Services Office business income form.

Renters insurance - Term for insurance for the nonowner occupant of a dwelling or apartment.

Replacement cost, see Actual cash value.

Replacement cost appraisal - An appraisal that determines the amount required to replace an existing structure and related personal property.

Replacement cost insurance - Covers property ð both building and contents ð on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to the terms of the coinsurance clause.

Reporting form - A device for insuring values subject to extensive fluctuation that keeps the premium in line with the actual exposure. A maximum limit is set at policy inception and the insured is charged a deposit premium. Actual values then are reported, usually on a monthly basis, and earned premium is figured on the basis of those reports and laid off against the deposit premium.

Reservation of rights - An arrangement in which an insurer agrees to proceed with the defense of a case without commitment to provide coverage, in the event that the facts disclosed during the trial reveal that the occurrence is not covered.

Reserves or reserved losses - The value of losses that have been estimated and set up for future payment.

Resident agent - A licensed agent who resides in and is licensed in the state in which business is being written.

Residual markets - Insurance markets established outside the normal insurance marketing channels to cover unusually large or poor risks. Such markets include assigned risk plans, aircraft pools, nuclear pools, and certain government insurance programs.

Respondeat superior - A legal term referring to the fact that, under specific circumstances, an employer (or principal) is legally liable for the actions of his or her employees while in the course of their employment.

Retention - Usually used in reinsurance, this is the amount of liability retained by an insurer, and not ceded to a reinsurer.

Retroactive date - The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy's stated retroactive date are excluded.

Retrocessionnaire - A reinsurer that contractually accepts a portion of the cedant's reinsurance risk. The transfer is called a retrocession.

Retrospective rating - A rating arrangement in which the final premium for insurance coverage is not determined until all claims are closed. The final premium is determined by the insured's actual loss experience during the policy period.

Rider - Another term for an endorsement attached to a policy that modifies the coverage.

Riot - One of the extended coverage perils, related to, but broader than, civil commotion.

Risk - Risk is uncertainty concerning loss. Sometimes also used to refer to a piece of business or a submission to an insurer.

Risk and Insurance Management Society, Inc. (RIMS) - Trade association of risk managers and insurance buyers.

Risk management - The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance.

Risk manager - The individual in an organization responsible for evaluating and controlling the organization's exposures through such means as avoidance, retention, or transference, as to an insurance company.

Risk retention group - An insurance company chartered under the laws of a state or other U.S. jurisdiction, composed of members whose business activities are similar, and controlled by its members.

Rolling store - A vehicle out of which goods are sold. An example is a mobile snack bar at a construction site. Insurance policies may contain wording that may restrict or define available coverage for this type of operation.

SIG - A self-insured group. An SIG is a group of risks, usually sharing common characteristics or exposures, that join together in order to generate enough premium volume to justify self-insuring themselves. Members of an SIG often are jointly and severally liable for the losses of one another.

Safe driver plan - Merit rating of automobile insurance. In most states drivers are charged with points for (moving) traffic violations and auto accidents. These points translate to surcharges on the drivers' insurance rates.

Salvage - When an insurer makes a payment for lost or damaged property, the insurer is entitled to the salvage of that property.

Schedule - List of items on a policy declaration, sometimes also showing descriptions and values.

Seasonal risk - A risk that is present only during certain parts of the year. For example: seasonal dwellings such as cottages used for vacations.

Self-insurance - An insurance-like strategy for handling one's own exposures to loss supported by the financial wherewithal to meet expected losses. Not to be confused with a decision to forego insurance.

Self-Insured Retention (SIR) - That portion of pure risk an insured undertakes to handle on his or her own. A deductible is a form of self-insured retention.

Selling price clause - Applicable to the value of goods which have been damaged or destroyed by an insured peril. This clause insures the profit that would have been earned if the goods had been sold. It sets the insurable value of the property that has been sold, but not delivered, at the amount at which it was sold, less any charges not incurred.

Severability - A provision that insurance applies separately to each insured under the policy.

Shock loss - Name given to any large loss that impacts an otherwise profitable book of business.

Short rate cancellation, see Cancellation.

Short tail - Additional coverage that may be purchased under a claims-made policy that responds to losses that may have occurred during a policy period, but are not reported until after the end of the policy period. Usually available for no longer than a year.

Sidetrack agreement - The contract between a business and a railroad wherein a railroad builds a track onto the business's property to facilitate shipping, and the business agrees to release the railroad from liability.

Sine Qua Non Rule - A legal rule stating that a person's conduct cannot be held to be the cause of a loss if the loss would have occurred anyway.

Single interest policy - A policy that insures the interest of only one party in property where there are a number of parties having an insurable interest.

Sinkhole peril - Risk of loss by collapse of a sinkhole. This is now covered as a basic cause of loss in commercial property policies.

Sistership exclusion - An exclusion in products insurance that eliminates coverage for the withdrawal or recall of products.

Sliding scale dividend plan - Often used with workers compensation insurance, dividend plans are established as a means of returning a portion of the premium to the policyholder if losses are better than expected and the insurance company board of directors declares a dividend. In a sliding scale plan, the amount of the potential dividend slides up or down according to the loss experience. Dividends cannot be guaranteed; they are paid upon declaration by the insurer's board of directors.

Slip - At Lloyd's of London, a document that identifies which syndicates are participating on a risk and for what percentage.

Smoke damage - An extended coverage peril.

Society of Chartered Property & Casualty Underwriters - Professional society of those having attained the CPCU designation. See CPCU.

Soft costs and rents - Related to builders risk insurance, these are the necessary expenses that are incurred because a building project is delayed as the result of a covered property loss. Included are expenses such as increases in architectural fees, loss of rents because the project completion date is later than planned, increased interest expense, etc.

Soft market - A term given to a condition in which insurance is relatively inexpensive and easy to obtain.

Solicitor - An employee of an insurance agent or agency who is empowered to sell insurance on behalf of a licensed agent, generally using only those insurers that the agency represents. A solicitor usually does not have binding authority, and the business that is generated by a solicitor usually is owned by the agent, not the solicitor.

Solvency - Insurers must have sufficient assets (capital, surplus, reserves) in order to satisfy statutory financial requirements (investments, annual reports, examinations) and to meet liabilities.

Special agent - An insurer's representative in a territory. He or she serves as a liaison between the insurer and the agent. The special agent is responsible for the volume and quality of the business written in that territory. Some states require a special license of special agents.

Special form - In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to limit and define the protection intended. See Open perils.

Specific excess reinsurance - Another term for per occurrence/per loss excess reinsurance.

Specific insurance - An insurance policy that covers only property specifically described in the policy, as opposed to blanket insurance which usually covers all property at specified locations.

Specimen policy form - Specimen policy forms often are requested when nonstandard coverage forms are being used. The specimen form may be reviewed to determine the actual policy provisions before coverage is bound.

Speculative risk - Risk which entails a chance of gain as well as a chance of loss. Contrast with pure risk.

Split limits - As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability.

Sprinkler leakage insurance - Insurance that covers damage due to the accidental discharge from an automatic sprinkler system.

Stacking of limits - The application of the limits of one or more insurance policies to a claim or loss.

Standard fire policy, see New York Standard Fire Policy.

Stated amount - Amends the valuation clause on a policy to include an amount that is stated as the value of the item(s) being insured. Usually, these policies pay the lesser of the ACV of the damaged property, the cost of repairing or replacing the property, or the stated amount.

Statutory Accounting Principles (SAP) - Statutorily mandated accounting principles and practices that must be followed when an insurance company submits its annual financial statement to the department of insurance. The principal objective of statutory accounting is to provide a framework for a conservative measurement of an insurer's surplus. In contrast to Generally Accepted Accounting Principles (GAAP) which are followed by most other businesses.

Steam boiler explosion, see Boiler & machinery insurance.

Stop loss - A provision in an insurance policy that cuts off an insurer's losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.

Strict liability - Liability ascribed to a manufacturer or seller of a defective or dangerous product regardless of any fault or negligence.

Subrogation - The right of one party who has paid for the loss of a second party to obtain recompense from the third party who is responsible for the loss. For example, an insurance company becomes ``subrogated'' to the rights of its insured to the extent of the insurer's payment for collision damage caused by the negligence of the other driver.

Subsidence - A form of earth movement, excluded in most property policies.

Substandard risk - A risk falling outside normal underwriting standards. If written at all, it is usually with a substantial premium surcharge.

Sue and labor clause - A marine insurance clause comparable to removal in property insurance.

Superfund - The better known name for the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) passed by Congress in 1980. Under this law, parties found responsible for polluting a site must clean up the contamination or reimburse the EPA for doing so. Liability is strict, retroactive, joint and several.

Superintendent of Insurance - In some states the Commissioner of Insurance is known as the Superintendent.

Supplemental extended reporting period - An optional reporting period that allows coverage for liability claims made after the policy period.

Surety, see Bond.

Surety Association of America (SAA) - A voluntary, nonprofit, unincorporated association that is licensed as a rating or advisory organization for surety and fidelity insurance in all states, D.C., and Puerto Rico. The SAA handles statistical information, filings, publications, and surety and fidelity bonds.

Surety bond - An agreement guaranteeing that a principal will carry out the contractual obligations the principal has agreed to perform or, alternatively, to compensate the other parties to the contract for losses resulting from the principal's failure to perform. Under many surety bonds, the principal is a contractor.

Surface water - Commonly known as water on the surface of the ground usually created by rain or snow that is of a casual or vagrant character, following no definite course and having no substantial or permanent existence. Some insurance policy may include surface water as a covered peril but exclude flood when defined as the overflowing of water from its natural boundaries, such as a lake or river.

Surplus - The amount by which an insurer's assets exceed its liabilities.

Surplus lines, see Excess & surplus lines market.

Surplus share reinsurance - A type of pro rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a predetermined portion of all insurance, premium, and losses. The primary insurer's retention in a surplus share agreement is stated as a dollar amount of the amount insured.

Syndicate - An association of insurers that work together to insure an especially large or hazardous risk. Also see Pool.

TPA - A third party administrator. A TPA is a contractor that adjusts and administers insurance claims.

Tail coverage - Coverage for claims made after a claims-made liability policy has terminated; the extended reporting or discovery period. See Nose coverage.

Temporary worker - An employee hired on a short term, often seasonal, basis.

Tenants improvements and betterments, see Improvements and betterments.

Third party - An outsider; a business or personal invitee or a party with absolutely no connection to an insured who may become a claimant under a form of public liability coverage because of injury or property damage alleged to have been caused by the negligence of the insured.

Threshold level - The point at which an injured person may bring tort action under a modified No-Fault Auto Plan. Many no-fault plans only allow tort action for pain and suffering after medical bills exceed some figure, like $1,000; or if disfigurement or death occurs.

Tight market, see Hard market.

Time element coverage - Insurance in which the element of time has heavy bearing on the extent of loss. Business income insurance covers loss of income for the unknown duration of the insured's business interruption.

Title insurance - Insurance that indemnifies the owner of real estate in the event that someone challenges his or her ownership of property, due to the discovery faults in the title.

Tort - A wrong for which a civil (as opposed to criminal) action can be brought. Many tort claims arise from negligence.

Trailer interchange agreement - An arrangement among truckers whereby trailers may be moved along by the tractors of one or more parties to the agreement.

Transfer of risk - A basic underlying principle of insurance, whereby the risk of financial loss is transferred from one party to another.

Transit coverage - Coverage of the insured's property while in transit over land from one location to another. Property insurance policies typically provide coverage only at locations identified in the policy.

Treaty reinsurance - An agreement in which the ceding company agrees in advance to cede certain classes of business or types of insurance to a reinsurance company. The reinsurer agrees to accept all risks or losses that fall within the terms of the agreement.

Twisting - The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit, or surrender his insurance for the purpose of taking out a policy in another company.

Umbrella liability - A liability contract with high limits covering over top of primary liability coverages and, subject to a self-insured retention (deductible), covering exposures otherwise uninsured.

Underground Storage Tank (UST) - Tanks sunk in the ground that are used to store or dispose of gasoline or other fuels, hazardous chemicals, or other pollutants or contaminants.

Underinsured motorists coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has auto liability insurance with lesser limits than the insured's. This coverage lies atop uninsured motorists coverage or atop the at-fault driver's low limit automobile liability insurance and provides the insured and passengers with protection equal (usually) to the insured's own automobile liability cover.

Underlying insurance policy - The policy providing initial coverage for a claim until its limit of liability is reached and an umbrella or excess policy's coverage is triggered.

Underlying limits - The limits of liability of the policy(ies) underlying an umbrella or excess policy.

Underwriter - One who researches and then accepts, rejects, or limits prospective risks for an insurance company.

Underwriters Laboratories, Inc. (UL) - Originally begun as a cooperative of western fire insurers to test materials, the UL is now an independent organization testing virtually every fabricated device and material. Items are permitted to bear the UL seal of approval only after they have passed stringent testing for safety.

Unearned premium - That portion of an insurance premium that would have to be returned to the insured if the policy were cancelled.

Unilateral contract - A contract such as an insurance policy in which only one party to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes his part of the consideration.

Uninsurable risk - An uninsurable risk is one that is literally uninsurable because loss is certain rather than possible.

Uninsured motorists coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has no auto liability insurance. Coverage is usually to the extent of limits required by state auto financial responsibility laws.

United States Longshore and Harbor Workers Compensation Act (USL&H) - A compulsory law administered by the Department of Labor that covers injuries to employees on vessels or dry-docks.

Unsatisfied judgment fund (UJF) - In some states a person who is injured in an automobile accident and who cannot collect from the person responsible, may collect from a special fund (UJF).

Vacant property - Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of vacant buildings so the (changing) definition of vacant property is quite important.

Valuable papers coverage - Provides coverage on valuable papers, such as: written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. It covers the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription.

Valuation - To estimate the value of a piece of property usually by considering its replacement cost or its actual cash value. Depreciation or wear and tear is factored into the estimate.

Valued policy, see Agreed amount clause.

Valued policy law - Law that exists in some states which applies primarily to buildings. The laws differ but, in general, they state that in case of a total loss the amount of insurance is the agreed amount of loss.

Vandalism and malicious mischief - Once treated as a separate peril to be added to a property policy or not, current property forms routinely include the protection.

Verbal threshold - Term in no-fault auto insurance, applicable in some states, which states that victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.

Vested commissions - Commissions on renewal business which are paid to the agent whether or not he or she still works for the insurance company with which the business is placed.

Vicarious liability - The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.

Waiver of subrogation - An insurer has the right of subrogation; however, it may waive that right through this method.

Wear and tear exclusion - A common heading for an all risks exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, scratched, etc. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped onto a fine wooden table.

Whole dollar premium - The practice of many insurers to round premiums to the nearest dollar, rather than carrying them out to the nearest cent. An amount of 51 cents or more is usually rounded up to the next dollar, and any cents amount less than that is dropped.

Workers compensation insurance - Coverage that conforms to the workers compensation laws of the states in which it written. See also Employers liability insurance.

Wrap up - A liability coverage specialty focused on contracting risks, attempting to manage in a single contract the broad interplay of exposures and interests among owners, general contractors, and subcontractors.

Written premiums - The entire amount in premiums due in a year for all policies issued by an insurance company.

XCU - Short for explosion, collapse, and underground, this acronym is used to denote that certain construction projects carry this hazard.

Y2K - An abbreviation for Year 2000. The Y2K problem resulted from the use of two-digit year fields in computer software codes and silicon chip technology. Because of this, the software or chip cannot recognize ``00'' as the year 2000 instead of 1900 or doesn't recognize it at all.

Zone system - Developed by the NAIC for the triennial examination of insurers. Under the system, teams of examiners are formed from the staffs of several states in each of the geographical zones. The results of their examinations are then accepted by all states in which an insurer is licensed, without the necessity of each state having to conduct its own examinations.